If the above Telly Duck (From the hit game show Telly Fun Quiz) stirs some nostalgic strings in the deepest gullies of your cerebral cortex, odds are that you have lived to see at least one major market correction.
With the South African stock market behaving the way it has over the last 5 years, people are prone to forget that sudden, prolonged or sharp downward movements in the market are all in the nature of the beast.
Most investors will remember the most recent major market correction towards the end of 2008. If not, allow us to refresh your memory with this graph of the JSE All Share index over the last 10 years:
“When investing, it is important to have a long term outlook”
Hands up if you have heard that one before? Everyone, right? Even though this mantra is by no means newly acquired knowledge, investor sentiment is still influenced by poor short term performance.
It’s not your fault; it is just raw human emotion trying to protect the precious capital you have. This flaw is inherent in all of us, but what distinguishes average investors from great investors is the ability to stay level headed during times of market downturns
As an Illustration, meet Paul:
He inherited a lump sum of R 1,000,000 at the start of 2002. Having a moderate appetite for risk, Paul decided to invest his money into a balanced fund.
After a year, this was the graph that Paul was looking at:
Needless to say, Paul was feeling uneasy about his investment. He decided to switch his money into a Money Market fund where his capital should be better protected, albeit at lower returns. Paul was burnt badly by this ordeal, and remained invested in the Money Market fund until today.
As a reminder of the merit of a long term outlook, allow us to show you this comparison of Paul’s money today versus what he could’ve had, had he not been short sighted and switched into the Money Market fund. We see that this cost him more than R2.5 million.
